The Arizona Court of Appeals has issued a significant ruling in the dispute between Narvetta Gipson, who purchased a duplex with faulty sewer line repairs, and the sellers (the Shinnicks) and the repair company (Rental Renovators, Inc.). The appellate court largely affirmed some of the lower court’s decisions but made crucial reversals regarding the allocation of attorneys’ fees and the denial of prejudgment interest for the homebuyer, Gipson.
The case originated from Gipson’s 2019 purchase of a Phoenix duplex from the Shinnicks. The contract required the Shinnicks to replace the sewer line, a job they assigned to Rental Renovators, who provided a warranty that transferred to Gipson. After closing, Gipson experienced repeated sewer line failures. Rental Renovators fixed the issues but refused to cover the costs under warranty, leading Gipson to hire others and ultimately file suit.
Gipson sued the Shinnicks for breach of contract and negligent misrepresentation, and sued Rental Renovators for breach of warranty and negligent misrepresentation. Rental Renovators counter-sued for non-payment for their repair attempts and unjust enrichment.
Testimony Exclusion Upheld
One of the key initial issues on appeal was the trial court’s decision to preclude Gipson from testifying about specific amounts of rent she had previously collected from the property. The trial judge granted a motion in limine barring this testimony, citing Gipson’s failure to properly and timely disclose this information as required by discovery rules (Rule 26.1).
The Court of Appeals found no abuse of discretion in this ruling. The appellate court noted that Gipson’s only timely disclosure regarding lost rent was based on an inadmissible hearsay rental analysis. Since Gipson failed to raise arguments about lack of prejudice or good cause for the delay to the trial court, those arguments were waived on appeal. Accordingly, the ruling excluding testimony on prior rental amounts was upheld.
Fee Award Against Sellers Affirmed
Gipson challenged the substantial attorneys’ fees and costs awarded to both sets of defendants. Regarding the Shinnicks, the trial court awarded them over $120,000 in fees and costs after the jury ruled entirely in their favor on Gipson’s claims against them.
The Court of Appeals reviewed this award and found no error. Since Gipson lost on all claims against the Shinnicks, they were deemed the “successful party” eligible for fee shifting under Arizona law. While Gipson argued the amount was excessive, the appellate court noted that many of her objections were waived because they weren’t raised below. For the arguments preserved—concerning a settlement offer—the court found the trial judge acted within reason, especially since the amount Gipson recovered at trial was less than even the Shinnicks’ portion of a joint settlement offer.
Major Victory for Gipson Against Repair Company
The most significant reversal concerned the award of nearly $230,000 in fees and costs to Rental Renovators. The trial court had sided with Rental Renovators in determining the “successful party” for fee purposes, despite the jury’s verdict.
The jury found for Gipson on all her claims against Rental Renovators and awarded her $42,500 for the cost of replacing the sewer line. Rental Renovators, however, had counterclaimed for payment for their own repair work. The jury sided with Gipson on those counterclaims as well.
The appellate court focused on the proper legal standard for determining the successful party when there are competing monetary claims: the “net judgment rule.” This rule dictates that the successful party is the one who obtains a net judgment exceeding any setoff or counterclaim.
The court determined that because Gipson won on all claims against Rental Renovators and was awarded $42,500 while defeating Rental Renovators’ counterclaims, she was unequivocally the “successful party” under the net judgment rule. The appellate panel criticized the trial court for potentially using other tests, like the “totality of the litigation” or “percentage of success” tests, which are generally reserved for situations where the net judgment rule doesn’t readily apply.
The Court of Appeals therefore vacated the award of fees and costs to Rental Renovators and remanded the case, instructing the lower court to determine a reasonable award of fees and costs *to Gipson* against Rental Renovators.
Prejudgment Interest Granted
Finally, Gipson appealed the denial of prejudgment interest on her $42,500 jury award. The appellate court sided with Gipson here, too.
Under Arizona law, prejudgment interest is awarded as a matter of right on a liquidated claim—one where the amount owed can be precisely calculated. The court found that the jury’s verdict on February 6, 2024, liquidated Gipson’s damages, making the claim eligible for interest dating back to the verdict date. The court rejected Rental Renovators’ argument that prior case law prohibited interest until judgment.
The ruling mandates that the trial court calculate prejudgment interest for Gipson on the $42,500 award starting from February 6, 2024.
On Appeal Fees
Because Gipson represented herself on appeal, she cannot recover her own attorney fees, but she was awarded her taxable costs against Rental Renovators. The Shinnicks, as the successful party on appeal against Gipson, were awarded their requested appellate fees and costs.
In summary, the Arizona Court of Appeals affirmed the exclusion of certain testimony and the fee award to the Shinnicks, but it significantly shifted the financial landscape by reversing the fee award to Rental Renovators and ordering the calculation of prejudgment interest for Gipson.